US – Tariffs not hammering, economy remains resilient
Last week’s economic data confirmed that the US economy remains strong. Core CPI came in line with expectations, showing little evidence of tariff pass-through, although this was offset by strong seasonal effects. Retail sales surprised to the upside, and initial jobless claims declined more than expected. The anticipated drag from tariffs on growth and inflation has not yet materialised and may take longer than expected to impact the economy.
ECB – Will hold, but what is the terminal rate?
This Thursday, the ECB is expected to keep its reference rate unchanged. Last week’s data confirmed the eurozone’s current trajectory: disinflation alongside decent growth. Markets are pricing in one more rate cut before year-end, with a 90% probability, and the September meeting seen as the most likely timing. However, trade tensions and tariff developments could push the end of the cutting cycle slightly below current market expectations.
Fed – “Too late” to fire Powell?
Last week, President Trump floated the idea of firing Fed Chair Jerome Powell. The President continues to publicly call for lower interest rates, undermining the central bank’s authority and independence. Rates markets sold off aggressively on the news but partially recovered after Trump softened his tone in a subsequent interview. Futures markets are now pricing in additional rate cuts for April 2026, when a new chair is expected to be appointed. Pressure on the Fed is clearly mounting.
Japan – A new scenario after the Upper House elections
Japan’s ruling LDP–Komeito coalition lost its Upper House majority in Sunday’s election. Prime Minister Ishiba vowed to stay on despite the setback. He will now have to find a way to govern with opposition parties. However, diverging fiscal views make alliances difficult. Given the opposition’s preference for fiscal expansion, this is not good news for JGBs over the longer term. USDJPY opened slightly lower, as this scenario was already largely priced in.
Algebris Investments’ Global Credit Team
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